The Alchemists: Three Central Bankers and a World on Fire

[AlphaQuant]

http://www.amazon.com/The-Alchemists-Thr...1594204624

just finished this book borrowed from the NLB - thought it was pretty well written with decent "insights" into the workings of the 3 CB (Fed, ECB, BOE). For sharing.

[CityFarmer]

http://www.amazon.com/The-Alchemists-Thr...1594204624

just finished this book borrowed from the NLB - thought it was pretty well written with decent "insights" into the workings of the 3 CB (Fed, ECB, BOE). For sharing.

Sound interesting. Will put it into my reading list...

Thanks for the sharing...

[steven]

http://www.amazon.com/The-Alchemists-Thr...1594204624

just finished this book borrowed from the NLB - thought it was pretty well written with decent "insights" into the workings of the 3 CB (Fed, ECB, BOE). For sharing.

http://online.wsj.com/article/SB10001424...80422.html

By
RAYMOND ZHONG

"Three Central Bankers and a World on Fire" is the subtitle of "The Alchemists," Neil Irwin's history of the financial crisis up to last fall, and while people still argue about the causes of the fire, there is little doubt about who has served as the principal firefighters. Federal Reserve Chairman Ben Bernanke, Bank of England Governor Mervyn King and former European Central Bank President Jean-Claude Trichet swelled their institutions' balance sheets and took control of national economic policies to avert global disaster—widely overstepping their authority in the process.
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The Alchemists

By Neil Irwin
(The Penguin Press, 430 pages, $29.95)

America's housing boom started the plates moving beneath the world economy, but the first tremor of the crisis was felt in France. In August 2007, the Paris-based bank BNP Paribas BNP.FR -0.48% suspended withdrawals on three funds that were heavily invested in U.S. mortgage-backed securities. Mr. Trichet, correspondingly, was the first of the triumvirate to activate emergency lending facilities, flooding European banks with liquidity. By year's end, Mr. Bernanke had cut the federal funds rate by 100 basis points and opened swap lines with Europe, while Mr. King was forced to save the British bank Northern Rock in a "shambolic" deal, as Mr. Irwin calls it.

Then came the collapse of Lehman, in September 2008. Mr. Irwin regards the decision by the Fed and the Bush administration to allow the bank's failure as a ruinous error. But the Lehman shock did provoke the Fed chairman and his counterparts across the Atlantic to shift into high gear. By early 2009, the three central banks had dropped their main policy interest rates close to zero. For more than four years now, interest rates have by far been the least interesting—and, for most people, the least controversial—feature of the central banks' response to the meltdown.

The real action has been in so-called unorthodox monetary policy. The Fed's quantitative easing began with purchases of mortgage-backed securities and agency debt and has since expanded into U.S. Treasurys. Mr. King ordered Britain's first round of QE in March 2009, buying £200 billion ($305 billion) of gilts and other assets. Between 2008 and 2010, the Fed aimed its liquidity Super Soakers at investment banks, insurance companies and big corporations. And Mr. Bernanke's role in shaping the Dodd-Frank financial regulatory regime surely counts as the largest by any sitting Fed chairman in the U.S. legislative process.

In Europe, meanwhile, Mr. Trichet played "influencer, not decider," as Mr. Irwin puts it, when Ireland's supersized banks started bleeding money in 2008 and European leaders scrambled to coordinate a response. But after Greece's troubles emerged in early 2010, with the revelation that Athens had been fudging its budget numbers for years, Mr. Trichet stepped firmly into the political arena, authorizing the ECB to buy the bonds of stricken euro-zone governments. This contravened the spirit if not the letter of the central bank's mandates. The string of sovereign bailouts that followed is nothing if not a case of unelected bodies—the ECB, the European Commission and the IMF—controlling the spending and tax decisions of elected governments.

It wasn't just in Europe that central bankers became influential voices on fiscal policy. Mr. Trichet's firm belief in "expansionary austerity"—the idea that simply reducing government deficits will pep up private-sector confidence and spur investment and growth—was set against Mr. Bernanke's Keynesian views on public spending. Mr. King's views fell in between, but his pointed disapproval of Gordon Brown's profligacy helped move public sentiment in the Tories' favor ahead of the 2010 election.

Mr. Irwin, a columnist and former reporter for the Washington Post, has written a detailed and fast-moving account of these perilous years. This is the crisis as told through emails, phone calls, meetings and one very fateful walk along the beach in Deauville, France. "The Alchemists" contains many battered notebooks' worth of what reporters call "color." We learn more about the wine and dinner menus at gatherings of policy makers than most of us will ever need to know.

The book is essentially a collection of newspaper-style features, but it makes an argument about central banking: "Peace and prosperity," Mr. Irwin writes in the afterword, "are never as deeply entrenched as they may seem at times when things are going well. Rather, they require people like Bernanke, King, and Trichet to safeguard them, often by doing things that are wildly unpopular." This is the more expansive vision of central banks' role, and it stands in contrast to the one that prizes banks' independence above all else. Both visions can be problematic. Even the high priests at the German Bundesbank are enmeshed with "politics" broadly defined: They are public figures, operating (mostly) in open view and reacting to events in the real economy.

Yet the fact that monetary and fiscal policies necessarily interact with each other hardly means they should be decided in tandem. At times during the crisis, central banks literally played give-and-take with governments. The ECB purchased sovereign bonds based on how convinced Mr. Trichet felt in a given week about Rome's and Athens's commitment to austerity and reform. Mr. King was accused of making an implicit deal with David Cameron's government, elected in 2010, to keep interest rates low as a reward for deep budget cuts. "That kind of conversation has never taken place," Mr. King told Parliament in March 2011.

Mr. Irwin highlights all this but is basically untroubled. "Democratic societies entrust central bankers with vast power," he writes, "because some things are so important yet so technically complex that we can't really put them to a vote." The power to print money is a vast one indeed. We should never be surprised when central-bank intervention helps keep the patient's heart beating. The tougher question is whether, in doing so, it has forestalled longer-lasting cures.

"The Alchemists" dodges this question and ends up as a largely uncritical defense of the central-bank status quo. Describing the "unique burdens" on these learned men, who battle benighted critics amid the threat of armageddon, Mr. Irwin makes central bankers seem like superheroes—but of the moody, misunderstood sort who populate contemporary blockbusters. Today America's economy is growing fitfully, Britain's is limping along, and the euro zone still hasn't gone to pieces. Alchemists in the end never did turn lead into gold.

Mr. Zhong is an editorial page writer for The Wall Street Journal Europe.

(Edited by moderator to remove link to ebook download)